Snapshot

Monthly viewpoint

The £19k cost of trying to time the market


David Brett

David Brett

Investment Writer

“Buy low, sell high” – that’s every investor’s goal. However, it’s easier said than done. Especially if you’re trying to time the market, which is notoriously difficult, if not impossible.

It can also be costly. Our research shows just how costly it can be when you get the timing wrong.

Time in the market - not timing the market

Over three decades, mistimed decisions on an investment of just £1,000 could have cost you more than £19,000-worth of returns.

Our research examined the performance of three indices that reflect the performance of the UK stock market – the FTSE 100, the FTSE 250 and the FTSE All-Share.

If at the beginning of 1989 you had invested £1,000 in the FTSE 250 and left the investment alone for the next 30 years, it might have been worth £26,831 by the end of 2019. (Bear in mind, of course, that past performance is no guarantee of future returns).

However, the outcome would have been very different if you had tried to time your entry in and out of the market.

During the same period, if you missed out on the index’s 30 best days the same investment might now be worth £7,543, or £19,288 less, not adjusted for the effect of charges or inflation.

Over the last 30 years you could have made:

  • 11.6% per year if you stayed invested the whole time
  • 9.6% per year if you missed the 10 best days
  • 8.2% per year if you missed the 20 best days
  • 7.0% per year if you missed the 30 best days

The 2% difference to annual returns between being invested the whole time and missing the 10 best days doesn’t seem much. But the compounding effect builds up over time, as shown in the table below. If you had invested in the FTSE 250 it could have cost you more than £11,000 during that time.

Staying invested the whole time vs timing the market

Time-in-the-market-2020-392684.jpg

Please remember that past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

When observing returns over long periods, investors should also bear in mind that markets can be volatile, with many fluctuations up and down during the timespan.

Nick Kirrage, a fund manager on the Schroders value investing team, said: “You would have been a pretty unlucky investor to have missed the 30 best days in 30 years of investing, but the figures make a point: trying to time the market can be very, very costly.

 “As investors we are often too emotional about the decisions we make: when markets dive, too many investors panic and sell; when shares have had a good spell, too many investors go on a buying spree.

 “At times over the last three decades you would have to have had nerves of steel as an investor.

“They have included some monumental stock market crashes including Black Monday in 1987, the bursting of the dotcom bubble at the turn of millennium and the financial crisis in 2008, to name but three.

“The irony is that historically many of the stock market’s best periods have tended to follow some of the worst days.

“It’s important to have a plan of how long you plan to stay invested, with that plan matching the goals of what you’re trying to achieve, be it money for retirement or your children’s university education. Then it's just a matter of sticking to it - don't let unchecked emotions derail your plans."

Speak to a financial adviser if you are unsure as to the suitability of your investment.

For Accredited Investors Only. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument and is not intended to provide and should not be relied upon for accounting, legal or tax advice, or investment recommendations.

The information in this market outlook is derived from sources which we consider to be reliable. However, it may not in all cases be verified independently and we do not attest to its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Forecasts may be the consensus of extremely divergent possibilities and the full range of potential outcomes should be appreciated. No representation or warranty is made that any value (or proximity to) any value, return or forecast will be achieved. The opinions expressed are those of employees of Schroder & Co. (Asia) Limited, and reflect their judgement at this date and are subject to change. Reliance should not be placed on the views and information in this market outlook when taking individual investment and/or strategic decisions. 

No part of this document may be reproduced in any manner without the prior written permission of Schroder & Co. (Asia) Limited.

Contact Schroders Wealth Management

To discuss your wealth management requirements, or to find out more about our services, please contact:

Jasper Lai

Jasper Lai

Head of Client Advisory